Porter's (1980) Generic Strategies as Determinants of Strategic Group Membership and Organizational Performance Author(s): Gregory G.

Dess and Peter S. Davis Source: The Academy of Management Journal, Vol. 27, No. 3 (Sep., 1984), pp. 467-488 Published by: Academy of Management Stable URL: http://www.jstor.org/stable/256040 . Accessed: 14/07/2013 12:43
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Journal ?Academyof Management 1984,Vol. 27, No. 3, 467-488.

Porter's

(1980)

Generic Strategies as Determinants of

and

Strategic Group Membership Organizational Performance1

GREGORYG. DESS FloridaState University PETER S. DAVIS Universityof Oregon

A multimethod,multivariateanalysis of "intended" providesempiricalsupportfor thepresenceof strategies strategic groupsbaseduponPorter's(1980)genericstratin intraindustry and growth egies. Variations profitability arefound to be relatedto strategicgroup membership. Firmsidentifiedwithat least one genericstrategyoutperformed firms identifiedas "stuck in the middle." The primarypurposeof this paper is to demonstratethe viability and usefulnessof categorizingfirms within an industryinto strategicgroups on the basis of theirintendedstrategies.Theseintendedstrategiesmay be identified on the basis of Porter's (1980) generic strategies-differentiation, overalllow cost, and focus. This study consists of threedistinctbut interrelated bephases. Phase 1, the field study, examinesthe relationship tween a firm's "intendedor espoused" (Mintzberg,1978)strategy-representedby the competitivemethods(e.g., competitivepricing)considered most importantby the firm's top management team-and the presenceof within orientations an These strategic industry. strategicorientationsare classifiedon the basis of which of the three alternativegenericstrategies they appearto representmost closely. Phase 2 consists of a panel of experts who assess the importance of each of the identified competitive methodsfor eachgeneric Theuse of thispanelservesto corroborate strategy. the researchers' inferencesdrawn from the field study. Phase 3 uses the perceptionsof the chief executiveofficers to cluster firms that exhibit a
'The authors wish to express their appreciation for the thoughtful comments made by Alan Bauerschmidt, Danny Miller, and Carolyn Woo on an earlier draft of this paper, as well as the helpful suggestions of three anonymous reviewers. An earlier version of this paper was presented at the 1982 Academy of Management Meetings in New York. This research was supported, in part, by grants from the Division of Research, College of Business Administration, University of South Carolina, and the Edna Benson Foundation at the University of Washington. 467

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of performance into distinctgroups.Measures similarstrategicorientation to for firms comprisingeach strategicgroup are assessed detect whether significantdifferencesexist between strategicgroups within an industry. have importantimplicationsfor both practicDifferencesin performance interestedin the strategicgroup concept. ing managersand academicians

TheoreticalBackgroundand EmpiricalResearch
shiftawayfrom has showna noticeable The fieldof strategic management the atomistic view of strategy-in which each firm is consideredunique in all aspects-toward a new view that supportsthe recognitionof comhavebeen referred monalitiesthat existamongfirms. Theseconfigurations to as "gestalts"(Hambrick,1983b;Miller, 1981),said to represent"tightly integratedand mutuallysupportiveparts, the significanceof whichcan best be understoodby making referenceto the whole" (Miller, 1981, p. 3). Similarly,Hatten (1979), in his discussionof strategicgroups within an industry,recognizedthat subgroupsof firms employ different mixes variables. of whataresubstantially the samestrategic Thus, strategic groups frame of reference betweenviewingthe ina intermediate useful provide each firm separately (Porter, 1980).The dustryas a whole and considering of firms providesa frameworkfor emergingconcept of a strategicgroup recentcalls for empirical"evidencethat strategiesdiffer among answering results" firmsand that betterstrategiesmake a differencein performance (Schendel& Hofer, 1979, p. 517). Thepresence of groupsof firmswithinan industry followingsimilarstrategies has been identifiedin the home appliance(Hunt, 1972),the chemical process(Newman,1973),the consumer goods (Porter,1973),andthe brewmodels of the brewingindustry ing industry(Patton, 1976). Quantitative (Hatten& Schendel, 1977;Patton, 1976)recognizedthat firms within an industrydiffer along dimensionsother than size and market share. measurement of strategyused Unfortunately,most of the multivariate almost on meahas relied to developthe strategic exclusively groupsconcept sures of implementedstrategy.One problemwith existingtypologieshas been that few of the propositionsregardingthe types of strategiesa firm may follow to become a leaderin its markethave been tested with data differentfrom that used to developthem (Schendel& Hofer, 1979). This methodologicallimitationmay lead to findings that lack generalizability and that are incapableof confirmationin otherresearchsettings.Another problemis that existingtypologiestend to put businessunit strategiesinto genericcategoriesbasedon the size or marketshareof the firmand its rate of returnon investment(Hatten, 1974;Porter, 1979). Such a narrowapof many typologiesto a ratherselectgroup proachlimitsthe applicability of firms within an industryand presentslittle in the way of prescriptions useful acrosssize categorieswithinan industry.It is believedthat Porter's frameworkof generic strategiesand competitivedimensionsprovides a

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potentiallyvaluableresearchtool for classifyingthe strategiesof all competitors within an industry. Many previousmodels of strategicgroups (Hambrick, 1983a;Porter, strategiescould best be inferredby 1974)have impliedthat organizational resourceallocations.However,the reanalyzingpatternsin organizational liance upon measuresof resourceallocationsmay inhibit recognitionof the centralthreador underlying logic of a firm's strategyby failingto considerthe roleof strategic choiceas exercised members. by key organizational Thenotionof strategic that similar choicerecognizes organizations operating withinthe sameenvironment difmay choose to addressthat environment of their based on the orientation ferently strategic management(Ackoff, 1970). Indeed, the elementof strategicchoice is inherentwithin the concept of strategy,which is viewed as implyingthat "the organizationpurin termsof a patsues a purposive,directivecourse,whetherit is described tern of decisions, or in terms of the goals, plans, or intentions of the organization"(White& Hamermesh,1981, p. 216, emphasisadded). Previous evidencefor the importanceof strategicchoice for marketbehavior, although compelling,has relied on indirectmeasuresto show that firms follow different strategieswithin an industry(Caves, 1980). Hambrick(1980)recognizedthat it shouldbe possibleto developmultivariatemeasuresof intendedstrategiesas well as implementedstrategies. Demonstration of the abilityof a multivariate measureof strategicchoice to classify firms into homogeneousgroups based on Porter's model of wouldprovidemuchneededempirical evidence,not only genericstrategies for the constructvalidityof Porter's (1980)typology but also for the notion of strategicgroups in general. Porterdevelopsthreepotentially for creating successful genericstrategies a defensibleposition and outperforming in a competitors given industry. The first, overallcost leadership,althoughnot neglectingquality, service, and other areas, emphasizeslow cost relativeto competitors.The second strategy,differentiation,requiresthat the firm createsomething,eithera as beingunique, thus productor a service,that is recognizedindustrywide firm the to command than permitting higher averageprices. The third is a focus strategy,in which the firm concentrateson a particulargroup of customers, geographicmarkets, or product line segments. These three threebroadtypes of strategicgroups, and thus genericstrategies represent the choiceof strategy"can be viewedas the choiceof whichstrategic group to competein" (Porter,1980,p. 149).Firmsorientedtowardspecificstratfirmscharacterized egiesshouldoutperform by Porteras "stuckin the middle." Portermaintainsthat this latterclass of firms, by failing to develop its strategyalong at least one of these threecategories,is "almost guaranteed low profitability"(1980, p. 41). Theunderlying of thispaperis thatvariations in intraindustry proposition profitabilityand growthmay be explainedon the basis of strategicgroup The strategicgroupsmodel also servesto explaindifferences membership. in performance sizes:evenwhenfirmsaredivided amongfirmsof equivalent

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of more by sizeclasswithinan industry,eachdivisionmay containmembers than one strategicgroup. Method Overview The field studywas comprisedof responsesfrom executivesof a sample of firmsthat wereusedto developthe dimensionsassociatedwiththe three genericstrategiesoffered by Porter. For the second phase, a panel of expertsfrom the academiccommunityprovidedrecommendations regarding content of each of Porter'sgenericstrategies.The use of the appropriate a panelof experts in strategy followsthe recommendations of Harresearch of investigator and corroboration inferences rigan(1983)for the refinement developedfrom field research.Thus, the first two phasesof the study enabledthe researchers to combinethe descriptive capabilityof field research with the normativerecommendations obtained from a panel of experts. Phase 3 of the study classifiedfirms with similarstrategicorientations into distinctgroups. These groupswere developedfrom the responsesof the subsample of firmsin whichthe chief executiveofficerwas the primary for firms comprisingeach strategic respondent.Measuresof performance groupwereassessedto detectthe presenceof significantdifferencesamong the strategicgroups.
Phase 1: Field Study

as Strategicorientationswithinan industrywereseen by the researchers teams about the competitive by the views of top management represented methodsfirmsuse in theirindustry.Whenthe research instrument was constructedit was assumedthat all membersof the top management team had knowledgeof the strategyof their firm, and that the strategycould be inferredon the basisof the emphasisor importance givenvariouscompetitive methods availableto the firm. Porter recognizesthat the strategiesthat companiesuse to compete in an industrycan differin a widevarietyof ways, and he proposesa number of "strategic dimensions" thatshouldcapture thepossibledifferences among the strategicoptions of companiesin a given industry.These dimensions are comprisedof competitivemethods that include brand identification, channel selection, technological leadership, cost position, service, and methodsprovide leverage,amongothers(Porter, 1980).Thesecompetitive a meansfor characterizing of competitors withinan industry. the strategies A groupof firmswithinan industry that followsthe sameor a similarstratsimilarcompetitive egy (i.e., emphasizes methods)will comprisea strategic group (Porter, 1980). Research Instrument. Followinga reviewof Porter(1980),an instrument was inductivelyderivedto evaluatethe variouscompetitivemethodsthat

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a particulargeneric strategy. The content might be used to characterize was enhancedthrougha reviewof questionvalidityof the questionnaire naireitems used by previousstrategyresearchers (Bourgeois,1980;Child, 1975;Khandwalla,1976). In orderto pretestthe researchinstrumentin a field setting, the CEOs of four manufacturing firms, not includedin the to ascertain the comprehensiveness andphrasfinalsample,wereinterviewed ing of the questionnaireitems. Next, the relevanceof particularcompetitivemethods for firms within the industrywas ascertained interview throughthe use of a semi-structured in eachof the sample withthe chiefexecutive officer(or designated executive) firmswithinthe industrychosen for the study-the paintsand alliedproductsindustry.Duringthe interview the executive was askedto identifythose of the top management teamwho aremost influentialin the makmembers decisionsfor the firm. By incorporating the richness of anecing of strategic dotal informationabout the firm, the industrywithin which it competes, and methodsof competitionin that industry,the researchers were able to modify the instrumentin orderto enhanceits ability to capturecompetitive methods that identify the strategicorientationof a firm's decision makers.In orderto generalizeacrossthe sample,the sameinstrument was administered to all respondents. The interviewswith the executivesof the pretestand sample firms led to severalimprovements in both the wordingand the compositionof the list of competitivemethods.A modificationthat helpedrefinethe final instrumentillustratesthe benefit of on-site interviews.The presenceof intensepricecompetition was mentioned and suggested by severalrespondents the inclusionof the item "competitivepricing." The sentimentsof the exin thisregard ecutives arelargelyconsistent witha U.S. Department of Commerce industryreport that stated that the profit-after-taxes as a percent of salesfor the paintindustry(the site of this study)was2.25 percent,comindustriesof 5.25 percent.The paredto an averagefor all manufacturing reportfurthersuggestedthat the depressedprofits were largelyattributed to a price-costsqueeze, reflectedby the 1978 ProducersPrice Index for to the averagefor paintrawmaterials paintof 192.3(1967= 100)compared of 212.7 (U.S. IndustrialOutlook, 1980). Sampleand Data Analysis. Severalcriteriawereused in the selectionof firmswithinthe paintsand alliedproductsindustry.First,the 4-digitStandardIndustrial Classification mea(SIC)codewas chosenas an appropriate sure of the industrialenvironment.This unit of analysisis supportedby Porter(1980). Second, the output of firms had to be concentratedin one line of businessto avoid confusion between methods used in competing in multiplebusinesses.The criterionfollowedRumelt's(1974)"singlebusiness" or "dominantbusiness" categorization: that is, at least 70 percent of the firm'stotal saleshad to be withina given4-digitSICindustry.Third, the organizationhad to be an autonomous, self-containedentity. Thus, the researchers wereableto consider andbusiness-level stratcorporate-level as egies synonymous(Hofer, 1975). Fourth, the organizationshad to be

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to relativelyhomogeneousin size. This criterionpermittedthe researchers controlfor any potentiallyconfoundingeffects imposedby widevariations in organizational resourcesand scope of operations.Fifth, the organizationshad to be similarin the technology theyemployed.Woodward's (1965) classificationof manufacturing processeswas used to classify the sample as using a batch technology.Finally, the organizationshad organizations to be locatedwithina limitedgeographicareain orderto facilitatethe performanceof the on-site interviews. Basedon an analysisof forcesthat drivecompetition,Porter(1980)clasof one of five genericindustrialenvironsifies industriesas representative or (5) global. ments:(1) fragmented, (2) emerging, (3) mature,(4) declining, The paints and allied productsindustryhas a 4-firm concentrationratio of less than 40 percent(i.e., 22 percent).There is no true marketleader, and thereare a largenumberof smalland medium-sized companies,many of them privately-held. Thesecharacteristics identify the paints and allied an identification that is confirmed by Porter productsas highlyfragmented, (1980). In the field study, 28 nondiversified firms in the paints manufacturing and alliedproductsindustry(SIC 2851) wereinitiallycontacted.Of these, 22 fully participated. The final industry-specific was mailed questionnaire to each CEO for distribution to the previouslyidentifiedtop management team members.These individualswere asked to indicatethe importance of the 21 competitivemethods (e.g., customerservice, brand identification) to their firm's overallstrategy.A 5-point scale was used with values rangingfrom "1 = Not at all important"to "5 = Extremelyimportant." A total of 78 of 99 possiblerespondents(79 percent)from the 22 sample firms completedthe questionnaire. Factor analysis of the questionnairedata on competitivemethods was usedto developthe competitive dimensions associatedwitheachof Porter's Factor the has sumgenericstrategies. analysis abilityto producedescriptive mariesof datamatrices,whichaid in detectingthe presenceof meaningful patternsamong a set of variables. Resultsof Phase 1. The principalfactorsolutionobtainedafterthe varimax rotationfor the 21 competitive methodsis shownin Table1. Although five significantfactors(i.e., eigenvalues > 1) emergedfrom the factoranalthe three factors the ysis, only explaining greatestamountof total variance are shown in Table 1. The other two factorswere droppedin the interest of parsimony;additionally,a screetest (Cattell, 1976)indicatedthat they should be excluded. The factors displayedin Table 1 are rank orderedfrom left to rightaccordingto the proportionof total variancethey explained.The factorsare named to reflect the three genericstrategiesthey were interpreted by the writersas representing. methodsexhibited factorloadingsgreater Overall,15of the21 competitive than or equal to ? .50 on at least one factor. These loadingsmay be considered to be a conservativecriterion;Kim and Mueller (1978) suggest

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Table 1 CompetitiveMethods: Factor Structureand Commun

Factor One Differentiation Squared Factor Factor Loadings Loadings
a a1) ( (a2)

Competitive Methods

Factor Two Low Cost Squared Factor Factor Loadings Loadings

(a2 (a22)

V1. New productdevelopment V2. Customer service V3. Operating efficiency V4. Productqualitycontrol V5. Experienced/trained personnel V6. Maintainhigh inventorylevels V7. Competitive pricing V8. Broadrangeof products V9. Developing/refining existingproducts V10. Brandidentification in Innovation V11. marketing techniquesand methods V12. Controlof channelsof distribution V13. Procurement of raw materials V14. Minimizing use of outsidefinancing V15. Servingspecialgeographic markets to manufacture V16. Capability specialtyproducts V17. Productsin high pricemarketsegments V18. Advertising V19. Reputation withinindustry V20. Forecasting marketgrowth V21. Innovation in manufacturing processes Eigenvalue Percentof commonvariance Percentof total variance

.19858 .03943 -.26645 .07100 .29412 .08650 .16526 .02731 .05293 .00280 .24855 .06118 .04730 .00223 .02949 .00087 .19764 .03906 .82943 .68795 .85953 .73879 .70853 .50201 .50326 .25327 .23042 .05309 .17321 .03000 -.08241 .00679 .22651 .05131 .83112 .69076 .04930 .00243 .55085 .34034 .44429 .19739 6.7871 62.60 32.3

.15352 .02357 .48492 .23515 .51166 .26180 .80309 .64495 .58847 .34630 .07925 .00628 .00040 -.01997 -.11203 .01255 .61536 .37867 .12707 .01615 .20290 .04117 .29166 .08507 .61069 .37294 .30128 .09077 .10626 .01129 .16097 .02591 .00842 .00070 .01627 .00026 .78639 .61841 .51302 .26319 .61579 .37920 2.2416 20.74 10.7

-. -.

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factorloadingsof .30 as a cutoff for significance.Similarly,Nunnallysuggests that "it is doubtfulthat loadingsof a smallersize be taken seriously, becausethey represent less than ten percentof the varianceof the factor" methods(i.e., V13, and V20)loaded (1978,p. 423). Two of the competitive highly on more than one factor, indicatingthat they may be germaneto more than one generic strategy. A commonmethodologicalweaknessthat mightthreatenthe reliability and validityof the factor analyticresultsis the possibleinstabilityof the factor loadings. Instabilityof the factor loadingsbecauseof samplingerror may resultfrom the use of a relativelysmall ratio of subjects(n = 78) to measures(n = 21). This ratio of 3.7 approachesbut does not exceedthe desirablebut conservative ratio of four or five to one advocatedby some authors(Hair, Anderson,Tatham,& Grablowsky,1979).The samplesize does exceed that suggestedby Lawleyand Maxwell(1971) for the maximumlikelihoodsolutionmethodof confirmatory factoranalysis.Theysugif the samplecontainsat least 51 morecases gest thatthis test is appropriate than the numberof variablesunderconsideration.Furthermore, giventhe exploratorynatureof the researchquestionas well as constraints-time, of firms-inherent in field research,the samplesize resources,availability of this study is not considereda significantlimitationin interpreting the results.
Phase 2: Panel Study

A panel of expertswas used to developnormativerecommendations regardingthe appropriatecontent of each of Porter's (1980) three generic selectedon the basis strategies.The panelconsistedof sevenacademicians of theirexperience and expertisein the field of strategicmanagement.The panelwas used to evaluatePorter's(1980)conceptsregarding genericstrategies becauseof the common core of knowledgethey possessedrelevant to the area of inquiry.Each panel memberwas asked to reviewPorter's andthencompletethreequeschapteron "Generic Competitive Strategies" tionnaires,one for each of Porter'sthreegenericstrategies.Eachquestionnaireconsistedof the same21 competitivemethodsand associated5-point scalesused in the field research.The panelmemberswereaskedto indicate the importanceof each competitivemethodfor each genericstrategy.The data wereanalyzedto determine whetherexpertswould uniquelyorganize the competitivemethodsfor each strategy.Furthermore, because"expert judgeswill not show well-knownbiasesas leniency, halo, etc." (Einhorn, 1974, p. 562), it is reasonableto expectthat the variablesbeing measured actually represent explanatory concepts when combined into global
constructs.

ResultsofPhase2. Thedescriptive statistics(means,standard deviations) for the developed panel's responsesare shown in Table 2. The statistics were used to evaluatewhich competitivemethods the expertsconsidered most importantfor each of Porter's genericstrategies.Table 2 indicates

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Table 2 Panel Technique:DescriptiveStatistics

Methods Competitive V1. New productdevelopment V2. Customerservice V3. Operating efficiency V4. Productqualitycontrol V5. Experienced/trained personnel V6. Maintainhigh inventorylevels V7. Competitive pricing V8. Broadrangeof products V9. Developing/refining existingproducts V10. Brandidentification V11. Innovationin marketing techniques and methods V12. Controlof channelsof distribution of raw materials V13. Procurement V14. Minimizing use of outsidefinancing V15. Servingspecialgeographic markets to manufacture V16. Capability specialty products V17. Productsin high price marketsegments V18. Advertising withinindustry V19. Reputation V20. Forecasting marketgrowth V21. Innovationin manufacturing processes Meanitem value Meanstandarddeviation Differentiation Strategy Mean S.D. 4.71 4.29 2.57 4.29 4.57 2.57 1.71 1.14 4.00 5.00 4.86 4.14 2.43 2.29 2.71 3.86 4.57 4.71 4.29 3.29 2.57 3.60 .49 .49 .53 .49 .53 .53 .49 .69 1.00 .00 .38 .69 .53 .49 1.25 1.07 .53 .49 .49 .49 1.13 1.07 OverallLow Cost Strategy Mean S.D. 2.29 1.71 5.00 3.00 3.57 3.14 4.86 2.14 3.86 1.86 1.71 3.00 4.86 3.29 1.57 1.14 1.29 2.43 2.57 4.00 4.14 2.93 1.25 .49 .00 1.00 .98 1.21 .38 1.07 .69 .69 .76 1.41 .38 .95 .79 .38 .49 1.72 .98 .82 1.07 1.21 Focus Strategy Mean S.D. 3.71 4.29 3.00 3.57 3.57 2.57 3.57 2.43 3.29 4.57 4.14 3.29 2.71 2.43 4.86 5.00 3.71 3.86 3.50 2.86 3.71 3.55 .49 .76 1.00 .79 .53 1.27 .79 .53 1.11 .53 .90 .49 .76 .79 .38 .00 .76 1.07 1.04 .69 1.38 .74

thatthe panelof expertsidentifiedsomecompetitive methodsas eithermost or least importantfor each of the genericstrategies.The analysisclarified the relationships methodsand the genericstrategies betweenthe competitive of the factor analysisdevelopedfrom the and aided in the interpretation field study. of the Results of Phase1 andPhase2 Comparison An important stepin the dataanalysisfor Phase 1 involveda comparison between:(1) the principalfactor solutionwith varimaxrotationfor the 21 methodsusedin the fieldstudyand (2) the opinionsof the panel competitive as to the appropriate contentof each of the genericstrategies.Thesefindin Table 3. are summarized ings Table3 is presented on the basisof Porter'sthreegeneric Under strategies. each genericstrategy,the competitivemethodsidentifiedby the managers and the panel of expertsare arrayedas most and least important.For the fieldstudy,the mostimportant methodswerethoseitemswhose competitive factor loadings were greaterthan .50. The least importantcompetitive methods were those items whose factor loadingswere between +.30 and -.30 (Kim& Mueller, 1978;Nunnally, 1978). For interpretive purposes, competitivemethodsthat exhibitedeithertheir highestor lowest loadings

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on the two factorsthat wereexcludedfrom analysiswerenot incorporated into Table3. For the panel, the most importantand least importantcompetitivemethods consisted of those items whose mean value was greater than or less than, respectively,one standarddeviationfrom the aggregate mean.

Table 3 Content of GenericStrategies:Summaryof Findings

Differentiation Experts Managers (most important) V10. Brand identification V1. New product development V 1. Innovation in marketing techniques and V10. Brand identification methods V11. Innovation in marketing techniques and methods V12. Control of channels of distribution V18. Advertising V13. Procurement of raw materials V18. Advertising V20. Forecasting market growth (least important) V2. Customer service V7. Competitive pricing V8. Broad range of products V13. Procurement of raw materials V14. Minimizing use of outside financing Overall Low Cost Experts V3. V7. V13. V21. Operating efficiency Competitive pricing Procurement of raw materials Innovation in manufacturing processes Managers important) V3. Operating efficiency V4. Product quality control VS. Experienced/trained personnel V9. Developing/refining existing products V13. Procurement of raw materials V19. Reputation within industry V20. Forecasting market growth V21. Innovation in manufacturing processes (least important) Customer service V8. Broad range of products Innovation in marketing techniques and V15. Serving special geographic markets methods V18. Advertising Serving special geographic markets Capability to manufacture specialty products Products in high price market segments Focus Experts V2. V10. V15. V16. V6. V8. V13. V14. Managers (most important) Customer service VI. New product development Brand identification V16. Capability to manufacture specialty products Serving special geographic markets V17. Products in high price market segments Capability to manufacture specialty products (least important) Maintain high inventory levels V3. Operating efficiency Broad range of products V6. Maintain high inventory levels Procurement of raw materials V7. Competitive pricing V12. Control of channels of distribution Minimizing use of outside financing V13. Procurement of raw materials V14. Minimizing use of outside financing V21. Innovation in manufacturing processes

V2. VI1. V15. V16. V17.

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methodsidenThe resultssuggestthat factorone consistsof competitive tified by the expertsas most importantto a differentiation strategy.Three of the four competitivemethods identifiedby the panel for this generic in factorone. Thiscloseassociation led the researchers arecontained strategy of a differentiation to interpretfactor one as representative strategy.This is supportedfurther:only one (i.e., V13) of the competitive interpretation methodsidentifiedby the panel as least importantappearedwith a high loading on factor one. Many of the competitivemethods loading highly on factorone appear of a marketing to be indicative orientation (e.g., brand Porter(1980)notesthatone of the principal economiccauses identification). industriesis high productdifferenfor the existenceof highlyfragmented if it is based on image. tiation, particularly factortwo containsthreeof the fourcompetitive methodsidenSimilarly, tified by the panel as most importantto an overalllow cost strategy.Factor two suggestsa predominantly productionorientation(e.g., operating efficiency).Such an orientationlends supportto the identificationof facof Porter'soveralllow cost strategy.Portercontor two as representative a highrelative tendsthat "achieving a low overallcost positionoftenrequires suchas favorable marketshareor otheradvantages, accessto rawmaterials" (1980, p. 36). Although therehas been some empiricalresearchto refute the requirement for a high relativemarketsharein orderto obtain a low cost position (Hall, 1980), it should be noted that one of the competitive methodswith a high loading on this factor was V13 (i.e., procurement of rawmaterials).As with factor one, interpretive supportis indicated;none of the competitive methodsregarded to this by the panelas leastimportant with on two. factor strategyappeared high loadings Moresimilarity on whatdoes betweenthe paneland managers appeared not ratherthan what does constitutea focus strategy.Three of the four methodsseenby the panelas leastimportant in a focus strategy competitive in their factor three with lowest factor loadings. However,those appeared methods (e.g., V16-specialty products-and V17-high priced competitive marketsegments)exhibitinghigh loadings on factor three do suggestan emphasison specificmarketsegmentsand imply concentrationon a particularniche.
Phase 3: StrategicGroup Membership and Organizational Performance

Phase 3 uses the responsesfrom the 19 firms whose CEO, ratherthan a "designated The chief executive executive,"was the primary respondent. is most importantin strategyformulation(Chandler,1962). Chief executives' perceptions of theirorganizations' aremorecloselyaligned strategies to externalmeasuresof strategythan are the perceptionsof other executives(Hambrick,1981b).Therefore, the CEOs'responses wereusedto catefirms into clusters similar intended Performance gorize reflecting strategies. data wereprovidedfor 15 of these firms and wereused to analyzedifferencesin performance amongthe clusters.Thisreductionin the samplesize

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firms(Porter, is regrettable butnot uncommon in the studyof privately-held 1979). calculated Theresearchers individual factorscoresfor eachCEOon each to Porter's(1980)threegenericstrategies of the threefactorscorresponding in accordancewith the following formula:
A= alizl + a2;i2 + ? ?.+ ajizj,

where:aj;is the factor score coefficient for competitivemethod j (= 1, value ..., 21) on factor i (i= 1, 2, 3), and zj is the CEO's standardized on competitivemethodj. The factor scores generatedfor each of the CEOs were used as input to a K meansclustering algorithm(Dixon, 1975).The CEOswereswitched from one clusterto anotheruntil the optimalclusterconfiguration,which maximizesbetweenand minimizeswithinclustervariances,was obtained. The clustersconsistedof subsetsof CEOsthat weremore similaror closer to each other in orientationthan they were to CEOs outside the cluster. Initiallya three clustersolution was chosen in order to facilitatecomparison with Porter's typology of three generic strategies.However, the three clustersolution did not adequatelydistinguishamong the clusters. with the exploratory Consistent natureof this research,a four clustersolution also was examined.The clustersthat resultedconsistedof CEOswho were most similar in respect to the factors (genericstrategies)that had emergedfrom Phase 1 of this study. The overallsignificanceof the clustersolutions obtainedwas tested by means of a one-way analysisof variance-based on the assumptionthat the scoresin eachof the variousgroupshave approximately the same variance. However,becausethe variousgroupsdo not containthe same numberof subjects,a Bartlett'sBoxF-test on the within-cell variances was used to test for homogeneityamong variances. Using Parsons'(1956)classificationof organizations by type of goal or function, the organizationsin this study would be classified as oriented toward economic production.Therefore,consistentwith the "economic primacy"of the subjectorganizations,the derivedgoals of the financial community(e.g., profitability,growth)should be consideredof primary in the assessment of organizational importance performance. Consequently, the researchers obtained"total firm sales" figuresfor the period 1976 to 1980to determine"sales growth" and "averageafter tax returnon total assets" from 1976to 1980to determine profitability.Annual salesgrowth ratesfor the five-yearperiodrangedfrom .8 percentto 37.7 percent,and averageaftertax returnon total assetsrangedfrom 1 percentto 42 percent for the sample. An F-valuewas calculated usinga one-wayanalysisof varianceto decide whether thereweresignificant differences amongthe strategic groups(clusters)on the basis of theirmean valuesfor the two performance measures. To determinewhere the significant differenceslie, Scheffe's posteriori

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means. contrasttest was usedto compareall possiblepairsof performance Among the variousmultiplecomparisontests, Scheffe's is consideredto test (Huck, Cormier,& Bounds, 1974).This test be the most conservative to groupsof unequalsizes and also offers the advantagesof applicability is relativelyinsensitiveto departures from normalityand homogeneityof variances(Hays, 1963). Resultsof Phase3: The ThreeClusterSolution.The profilesof the three fromthe clusteranalysisandthe performance strategic groupsthatemerged resultsare presentedin Table 4.

Table 4 of Results andPerformance Cluster Analysis Summary Relationships: The Three ClusterSolution
A. Mean Scores Cluster 1 (n= 12) 2 (n=4) 3 (n=3) Grand Means B. Mean Squares Differentiation Between groups 2.9503 Within groups .3083 2,16 d.f. F-ratio 9.568 .001 P-value = Bartlett's Box F-test .086, p = .917 Coordinate Centroids Overall Low Cost Focus Differentiation .5057 (.4332)c -.5063 (.5977) -1.0351 (.6462) .1441 .2437 (.8034) -.3723 (.3266) -.1808 (.7499) .0470 Overall Low Cost .6616 .6162 2,16 1.074 .388 .4000 (.5247) -1.2356 (.3484) .5225 (.4516) .0750 Performance Annual Return on Sales Growtha Total Assetsb .197 .084 .308 .118 .055 .044

Focus 4.3692 .2751 2,16 15.883 .001

aAnalysis of variance results for the three clusters: F= 5.531, p .022 bAnalysis of variance results for the three clusters: F=.724, p=.507 CStandarddeviations are in parentheses.

The one-wayanalysisof varianceprocedure indicatedthat the threeclusters of firms were significantlydifferent from each other on the basis of theiremphasison the differentiation (p < .001)andthe focus stratstrategy egy (p < .001)but not on the basisof the overalllow cost strategy (p = .388). The researchers had anticipated that eachof Porter'sthreegenericstrategies would be requiredto distinguishclearlythe different strategicemphases that existedamongthe clustersof firms. Thus, the inabilityof the low cost dimensionto accountfor significantdifferencesamong the three clusters wasunanticipated and provided for developing the rationale the fourcluster solution. The firstclusterhad its highestcentroidscoreon the differentiation strategy, and it was the only clusterthat displayeda positivescore for the differentiationstrategy.Clusternumbertwo displayednegativescoresfor all

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three of the genericstrategies.This lack of a positive score on any of the thisgrouphavefailed that firmscomprising indicates threegenericstrategies to developtheirstrategyin at least one of Porter's(1980)threedirections. Clusternumberthreeexhibitedthe highestpositivescoreof any clusterfor and negativescoresfor the othertwo genericstrategies. the focus dimension in Taken combination,the patternof centroidscoresthat emergedfrom to identify clusterone as representhe clusteranalysisled the researchers tative of a strategicgroup of firms orientedprimarilytoward a differentiation strategy.However,the patternof scores was not conclusive(i.e., the relativelyhigh scoreson the alternative genericstrategiesindicatedthe withinthis cluster of on than one more genericstrategy possibility emphasis of firms).Clusternumberthreeappearsto consist of a groupof firmsemphasizinga focus strategy.Clusternumbertwo evidencesan apparentlack of commitment to any of Porter'sgenericstrategies.Therefore,this cluster be may comprisedof firms that are "stuck in the middle" (Porter, 1980, p. 41). This does not imply that firms that are stuck in the middle do not emphasizecertaincompetitivemethods that are key componentsof one or more genericstrategies;however, the composite strategythat emerges may lack internalconsistency. The next step in the analysiswas to compareperformanceamong the threeclustersof strategicgroups. Table4 indicatesthat the threestrategic groups were not significantlydifferent from one anotherwith regardto profitabilityas measuredby returnof assets (p = .507). However, for the other performancemeasure,annual sales growth, Table 4 indicatesthat was significant(p = .002). This findingis constrategicgroupmembership sistentwithPorter's contention thatfirmsthatadopta generic strategy (1980) shouldoutperformthose stuckin the middle. Clusterone, the differentiation strategy 19.7percent annualsalesgrowth;clusterthree, group,averaged the focus group, averaged 31 percentannualsalesgrowth;and clustertwo, stuck in the middle, averagedonly 8 percent annual sales growth. The Scheffe test for significantdifferencesamong the groups on the performance measure"sales growth" shows that the mean value for the focus strategygroup is significantlygreaterthan the mean value for the stuck in the middle group. None of the other differencesis significant. Resultsof Phase3: Four ClusterSolution. The profilesof the four strategic groupsthat emergedfrom the clusteranalysisand theirlinks with organizationperformanceare presentedin Table 5. The four cluster solution resultedin the splittingof clusternumberone in Table4 into two separateand uniqueclusterslabeled one and four in Table 5. The composition of clustersnumberedtwo (i.e., stuck in the middle) and three (i.e., focus) remainedintact from the three clustersolution to the four cluster solution. Theone-wayanalysis of variance indicated thatthe fourclusters procedure of firms weresignificantlydifferentfrom each other on the basis of their dimension(p < .003), the focus dimension emphasison the differentiation (p<.001), and the overall low cost dimension(p<.001). Table 5 shows

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Table 5 of and Performance Results Cluster Analysis Relationships: Summary The Four Cluster Solution
A. Mean Scores Cluster 1 (n = 4) 2 (n=4) 3 (n= 3) 4 (n=8) GrandMeans B. Mean Squares Betweengroups Withingroups d.f. F-ratio P-value CoordinateCentroids Overall Focus Differentiation Low Cost .3268 -.5063 (.6902) -1.0351 (.7914) .5951 (.4195) .1441
(.5254)C

Performance Annual Returnon Sales Growtha TotalAssetsb .201 .084 .308 .170 .255 .055 .044 .089

1.2685 -.3723 (.3771) -.1808 (.9185) -.2687 (.4445) .0470

(.1444)

.6226 -1.2356 (.4023) .5225 (.5531) .2887 (.3176) .0750

(.8757)

Overall Differentiation Low Cost 2.0309 .3161 3,15 6.425 .003 2.5417 .2372 3,15 10.715 .001

Focus 3.0119 .2736 3,15 11.009 .001

Bartlett's Box F-test= .567, p= .638

of varianceresultsfor the four clusters:F= 3.89, p= .041 aAnalysis of varianceresultsfor the four clusters:F= 3.24, p= .069 bAnalysis cStandard deviationsare in parentheses.

that althoughclusterone displayspositivecentroidscores for each of the threegenericstrategies,the emphasison overalllow cost strategyis clearly dominant.Also, the primary orientation for the fourthclusteris a differentiation strategy.Thus, though the three cluster solution was anticipated to parallelPorter'sthreegenericstrategies, the four clustersolutionaffords an interpretation that is more consistentwith Porter's framework. It is importantto note that clusteranalysis,unlikemost parametric statisticaltechniques,does not explicitlyprovidea clearlyacceptableor unacso that relationships ceptablesolution. It merelyprovidesa structure may it is to make criteriathat guidedthe the emerge;thus, important explicit selectionof an appropriatesolution. In the presentcase, both subjective and objectivecriterialed to the selectionof the four clustersolutionas the moreappropriate. The subjective criterion of how involvedan identification manyclusterstheorywouldlead one to expect.Initially,threeclusterswere one for eachof Porter'sthreegeneric Theappearance anticipated, strategies. of the stuckin the middlegroupas a clusterin the initialthreeclustersolution suggested that the thirdgenericstrategy-overall low cost-which had not appeared as a significant determinant of groupstructure may havebeen pooled into one or more of the other groups. The most importantobjective criterionwas the appearanceof a significantF-value for the overall low cost factor when the numberof clusterswas increasedfrom three to four.

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is enhanced Thevalidityof thesefindings andinterpretations by the strong betweenthe compositionof the clustersand anecdotalinforrelationship A briefdiscusthe on-siteinterviews. mationobtained fromthe CEOsduring sion of a typicalfirm from each of the four clustersin Table 5 will convey this convergence. The CEOof a firmin the overalllow cost clusterstressed in manufacturing the primacyof high productivity operations.Production in modernfacilitiesand equipment incentivesand extensivereinvestment werementioned as veryimportant.Uncertainties regarding product-market the responsesof one of the CEOswhose firm scope seemedto characterize was in the stuck in the middle cluster. Perhapsthe relativelylow performance of his firm may be attributedto the lack of a well articulatedand consistentstrategybecauseof a lack of continuity(mentioned by the CEO) in the compositionof the top management team. The CEO of one of the firmsin the focus clusteremphasized the importanceof successfullycomniche. Favorablerelationswith peting withina particular product-market channels(i.e., paintingcontractors) wereconsidered to be key distribution highly important.Lastly, the CEO of one of the firms in the differentiation clusterassertedthat his firm's successlay more in differentiating the firmthanthe product.He contended thathis firm'sreputation for "superior serviceand quick reactionto customerneeds" enabledit to enjoy a high profit marginby charginga premiumfor his product. These remarksare clearlyconsistentwith Porter's generic strategies. The next step in the analysiswas to compareperformanceamong the four clustersor strategicgroups. Table5 indicatesthat differencesamong the four strategicgroupsregarding returnon total assets approachedstatistical significance(p = .069). This representsa noticeableimprovement over the resultsof the three clustersolution. The highest averageannual returnon total assets (25.5 percent)was achievedby clusterone with its emphasison overalllow cost; followed by clusterfour-differentiationwith 8.9 percent;clustertwo-stuck in the middle-with 5.4 percent;and clusterthree-focus-with 4.4 percent. The Scheffe procedureindicated that the differencesbetweenclusterone and clusterfour were significant For the other performance measure-sales growth-the overallF-ratio indicatedthat the groups were significantlydifferent from one another three-focus-was the leaderwith31 percent annualsales (p = .041).Cluster cluster growth;followedby clusterone-overall low cost-with 20 percent; four-differentiation-with 17 percent; and cluster two-stuck in the middle-with 8 percent.The Scheffeprocedure indicated thatthe difference betweenclustertwo and clusterthreewith regardto sales growthwas significant (p <.05). (p <.05).

Discussion Phase 1 of this study analyzedthe competitivemethods consideredto be most importantby the top managementof firms competingwithin a

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consistentcomsinglehighlyfragmented industry.Threesets of internally petitivemethods were identifiedthat conformedto Porter's (1980) three genericstrategies.The ability of questionnairedata to identify different "intended"strategiesin industrialsettingshas been supportedby others (Bourgeois,1980;Hambrick,1980). However,such an approach,with its emphasison "intended"strategies,has rarelybeen used to examinethe to organizational presenceof strategicgroupsand their relationships performance. The patternof competitivemethodsthat emergedfrom the field study closely resembledthat obtainedin Phase 2 from the panel of expertsand In addition providesadditionalsupportfor the authors'interpretations. to identifyingcompetitivemethodsof high importance,the managers and the panelalso identified itemsof lesserimportance for eachgeneric strategy. This convergence orientationsare indicative impliesthat these managerial of the two genericstrategies that Porter(1980)identifiedas differentiation and overalllow cost. However,the normative recommendations of the panel for the third of Porter's genericstrategies-focus-did not clearly coincide with the third orientationof the managers. The inabilityto identifyclearlythe thirdmanagerial orientation as reflective of a focus strategymay be due, at least in part, to what some regard as a limitationof the focus strategyas currently outlinedby Porter. Hofer (1982), for example, proposedthat when a firm deals in a marketcomposedof differentsegments,it may, for anygivenproduct,chooseto utilize eithera common appealacross all the varioussegmentswithin which the productcompetesor the firm may tailordifferentappealsfor specificcustomer groups. Under such a broaderview of a focus strategyit may not be possibleto prescribe a singleset of competitivemethodsapplicablefor all the potentialstrategycombinationswithinthis single genericstrategy. An importantimplicationis that equifinality(von Bertalanffy,1955)may characterize focus strategies,that is, thereis a broadrangeof differentbut consistentsets of competitive methodsavailableto firmsemployinternally ing a focus strategy. The clusteranalysisused in Phase 3 was based on the assumptionthat clustersof firms could be identifiedthat would correspondto a model of strategic groupsbasedon Porter'sthreegenericstrategies.Two of the clusin thethreecluster tersthatemerged solutiondidappear to represent Porter's differentationand focus strategies.However,the overalllow cost dimension did not appearas significantin determining the compositionof organizationalstrategies.Further,the apparentemphasison more than one genericstrategy,reflectedin the clustercentroidscoresof clusterone, led the researchers to investigatethe possibilitythat aggregationof dissimilar firmsmay have occurredwithinthe threeclustersolution. The four cluster solutionservedto disaggregate the largercluster(n = 12)previouslyidentified as differentiationinto two separateclusters.Each clusterreflecteda unique strategicorientation-differentiation (n = 8) and overalllow cost (n = 4)-as well as differentlevels of organizationalperformance.

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An importantfindingof the study is the apparentlack of singularityin thatcharacterizes the highestperformance orientation strategic group-cluster numberone. This grouphad the highestperformance on the returnon assets criterionand the second highestperformanceon sales growth. On the basis of its centroid scores, this cluster was identified as primarily orientedtoward an overall low cost strategy. However, this group also withthe highestcentroid GivenPorter's scoreon the focus strategy. emerged (1980)caution againstthe commitmentto multiplegenericstrategies,the exhibitedby the membersof this clustermay appearinhighperformance consistent.However,as Cyertand March(1963)suggest,highperformance may generateslack resourcesthat can be used to enable firms to expand theirpresentscopeof operations.Also, constraints posed by budgetlimitationsmayrequire thata firmlimitits emphasis to only one marketsegment. The presentcross-sectional research designinhibitsthe abilityto do more thaninfercausalrelationships. To a largeextentthe viabilityof inferences drawnfroma cross-sectional of organizational measurement relies strategies on the conceptof strategicmomentum(Miller& Friesen, 1980). The persistenceof strategiesover time may resultfrom decisionmakingprocesses as well as industry characteristics. The viewof organizations as conservative andresistant to changeis promulgated by the Carnegie group(Carter,1971; Cyert& March, 1963;March& Simon, 1958).Also, the presenceof intrabarriers to mobility(Caves& Porter, 1977;Harrigan,1982;Oster, industry 1982)may requiresuch an investmentof scarceresourcesas to make strategic change or exit costly if not prohibitive.Oster asserts: In the case of small organizations,the scarcityof resourcesand the high riskattendantwith strategic changemay help to explainwhy organizations continueto pursuemarginally profitablestrategies.The problemsmay be firms because of the lack compoundedin the presenceof privately-held of publiclyavailableinformationby whichto judge the strategiesand performanceof other firms. In summary,the research findingsare generallyconsistentwith Porter's contentionthat commitmentto at least one of the threegenericstrategies will resultin higherperformance than if the firm fails to developa generic strategy(i.e., becomesstuckin the middle).Additionally,the findingsthat the overalllow cost clusterhad the highestaveragereturnon total assets Andersupportpriorresearch by Woo and Cooper(1981)and Hamermesh, and Harris son, (1978)that rejectsthe notion that high marketshareis a for the successful of a low cost strategy. Porter requirement implementation also comments that "low cost maybe achievable withouthighshare"(1980, p. 44). However, it may be importantfor competitorsto identify with a genericstrategythat does not placethemin directcompetitionwith a large numberof firms evidencinga similarstrategicorientation.For example, a largenumberof firmsin the samplewereidentifiedas pursuinga differentiationstrategy,and this may have inhibitedthe ability of firms in this
To havesignificance for the allocationof resources, a strategy mustnecessarily involve somecommitment thatit is irreversable, at leastfor a time. It is difficultyof movement that makesgroupstructures potentiallyimportant(1981, p. 377).

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as those in other strategicgroup to realizeas high a level of performance less populatedgroups. Lastly, the group of firms identifiedwith a focus strategymay illustratea potentialfor trade-offsbetweengrowthand profitability.The focus groupwas the highestperforming groupon salesgrowth but had the lowest level of returnon assets. The findings in this respect are consistentwith the recent empiricalfindings of Trostel and Nichols firmsmay choose to emphasize (1982),whichindicatedthat privately-held salesgrowthas a decisioncriterionat the possibleexpenseof profitability.
Limitationsof the Study

Limitationsof this study should be noted. First, the generalizability of the studyis limitedbecausethe firmsused in the study representonly one of Porter's (1980) five genericindustrialenvironments.The relativeimportanceof the competitivemethodsmay varyacrossas well as withininFor example,Porterposits that the emphasison cost dustryenvironments. controland serviceorientationmay be of greaterstrategicimportancefor firmscompetingwithina fragmented industrythan an emergentindustry. Second, the relativelysmall sampleof firms and executivesincludedin the field studymay lead to some instabilityin the factorloadingsobtained from the factoranalysis(Kim& Mueller,1978;Nunnally,1978).However, natureof the studyand resourceconstraints inherent giventhe exploratory in field research,this limitationis not considereda majorbarrierin interpretingthe results. administered to the executiveswas used to deterThird,the instrument mine "intended"firmstrategies and may have servedto enactthe environment (Weick, 1979)to whichthe subjectresponded.Thus, executivesmay haveoverintellectualized on whattheyactuallydid or attempted to do (Duncan, 1979)in the formulationof their firm's strategy.Alternatively,the parsimonyof the instrumentmay have excludedimportantcompetitive methodsused by a firm. Thus, the instrumentmay not fully capturethe richnessor complexityof a firm's intendedstrategy. Fourth, the strategyrealizedby an organizationmay be differentfrom that intendedby the decisionmakers(Hambrick,1981a;Mintzberg,1978). An observeddiscrepancy betweenintentions and realizedstrategy mayarise from the inabilityof the firm to translateits intendedstrategiesinto actions becauseof unpredictable environmental change,a lack of appropriate or unrealistic implementational capabilities, expectations (Mintzberg, 1978). Singly,or in combination,thesefactorsmay resultin an emergentstrategy that is observedto be different from the intendedstrategy. Fifth, because all of the sample firms were privately-held,secondary sourcesfor confirmationof reporteddata wereunavailable.However,the authorsbelievethat the time, effort, and cooperation extended by the manof the firms well as as the researchers' assurances agers sample regarding confidentialityand sharingof the resultsof the study enhancedthe reliability of the informationprovided.

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Implicationsfor FutureResearch

thatexistamongthevarious the similarities research couldestablish Future that have been for typologies proposed classifyingfirms. For example,to of firmsstuckin the middlecompatible whatextentis Porter'sclassification with Milesand Snow's (1978)reactorsor Millerand Friesen's(1978)stagtypologycapable natingfirms?Thegoal wouldbe to developa parsimonious of classifyingthe arrayof strategicconfigurationsavailablewithin an industry.Suchsynthesiswould serveto answera recentcall for "developing and 'configurations"'(Miller& Mintzberg,1983, p. 57). The study of publicly-heldfirms would provide access to secondary sourcesof data, whichthen could be used to determineif firms classified on the basis of strategicchoice would be similarlyclassifiedon the basis of structural configurationsexhibitedby the firm. The use of maximally differentmethodscould providestrongevidencefor the validityof a particulartypology. Some evidencehas emergedthat strategiesappearto be enduringover time(Miller,1981).Systematic on a longitudinal research basiswouldreveal whetherperformance within and among strategicgroupsclassifiedon the basis of strategicorientationvariesover time. One may posit, for example, that as the industrylife cycleprogresses,the firmsstuck in the middle more may actuallybe ableto adaptto changesin the industryenvironment readilythan firms committedto a specific strategy. Finally,the role of strategicchoice as a method of classifyingstrategic groupsmay varyacrossas well as withinindustries,as suggestedby Hambrick (1983a), Snow and Hrebiniak(1980), and others.
or isolating composites which take the form of. . . 'gestalts,' 'archetypes,'

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